Plan Carefully for Out-of-State Real Property
Written by Lauren R. Talkington
We all know that many Tucsonans came from someplace else. This means quite a few have real estate located in other states, which can complicate an estate plan.
The disposition of real estate located in another state is governed by the law of the state it’s in. So, despite your expertly-crafted estate plan in Arizona, if you’ve decided to keep your house in Steubenville, Ohio, it’s Ohio’s law, not Arizona’s, that will determine the rules that must be followed to deal with that property at your death.
In many states, a probate proceeding is necessary to pass real property to the next owner. Thus, if you happen to have real estate in several states, your executor (or Personal Representative) may have to undergo legal proceedings in multiple jurisdictions just to collect the assets, which can create additional expense and delay.
That might not be necessary, however, particularly if any of the following is true:
- You hold the property with a co-owner AND there is a mechanism to automatically pass to the survivor. If the property deed includes the language “right of survivorship,” then it should pass automatically to the surviving owner without a court proceeding.
- You executed a beneficiary deed. This option allows you to designate who will receive your property when you die via a deed, also known as a transfer-on-death deed. The only difference compared to a regular property deed is it becomes effective upon death; until then, it can be revoked. Some version of this option is available in 27 states, including Arizona.
- You hold it in trust. One important benefit of revocable trusts is that they allow you to consolidate asset ownership, which simplifies administering multi-state estates at death. Having a trust is sometimes the most straight-forward approach to this issue because it works no matter where the property is located. If the deed for out-of-state property names your Arizona trust, your Arizona trust terms then control its disposition. That said, the deeds handling such property should be prepared by an attorney or other professional who knows how to properly prepare and record the transfer where the property is located. This may mean slightly more fees when your trust is initially established, but it will save far more additional fees in the long run.
In some states, there’s yet another option, especially for “small estates.” In Arizona, the intended recipient of real property can collect it if the equity in the property is valued at less than $100,000 and more than 6 months have passed since the owner’s death. Some states have similar procedures, but the details may be very different. For example, California has a similar procedure, but the property value is limited to only $50,000.
Considering the possibility of incapacity is also important. Sometimes, property in other states will need to be transferred, sold, or refinanced during lifetime. If the owner does not have the capacity to complete the transaction, someone needs legal authority to act on his or her behalf. If the property is in trust, it’s pretty easy; the successor trustee typically has the power granted to him or her in the trust document. If there is not a trust, a valid financial power of attorney should work. However, states can differ in what forms they are willing to accept; although powers of attorney are supposed to cross state lines. To be safe, if real property transactions in another state are likely, we recommend you execute a power specific to that state, or even a particular property. With no trust or recognized power of attorney, whoever is helping you might need to go to court to become your conservator to complete the transaction for you, which costs far more time and money than the other possibilities.
The bottom line is, if you own property in other states, carefully consider your plans and take some time to understand your options. That may mean discussing your specific holdings with your local
estate planning attorney to determine if you need an attorney in another state where the property is located. The extra attention will pay off in the long run.